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Walgreens Boots Alliance on Thursday unveiled a $1bn cost cutting programme as its chief executive warned of “challenging market conditions” in some of the areas where the pharmacy chain does business.

The group said it will target annual savings of more than $1bn by the end of the three-year cost-cutting scheme. “The programme includes divisional optimisation initiatives, global smart spending, global smart organisation and digitalisation of the enterprise to transform long-term capabilities,” the company said.

Walgreens, which operates Duane Reade and its namesake stores in the US and Boots in the UK, said it expects these initiatives to result in “significant restructuring and other special charges as they are implemented” and recorded pre-tax charges of $30m in three months ended in November.

The cost-cutting plan targets its pharmaceutical wholesale division, retail business in China and Mexico and its US retail pharmacy division.

“Our business [is] used to working in challenging market conditions, but in some of our markets, we have experienced the most difficult trading environment that I can remember,” chief executive Stefano Pessina’said on the company’s earnings call.

The remarks came as Walgreens reported a 9.9 per cent year-on-year increase to $33.79bn in sales for the quarter ended on November 30, aided by its 2017 decision to buy nearly half of rival Rite Aid’s stores. That was in line with analysts' estimates of $33.78bn, according to a survey by Refinitiv.

In the US, pharmacy sales climbed 17.5 per cent from a year ago, driven by higher prescription volumes following the acquisition of Rite Aid stores, while comparable pharmacy sales rose 2.8 per cent.

Retail sales rose 6 per cent though comparable retail sales were down 3.2 per cent as the company moved away from tobacco and faced tough comparisons in the year ago quarter, when sales were boosted by hurricanes and a severe flu season.

Its international retail pharmacy division saw a 5.9 per cent decline in sales. In the UK, like-for-like pharmacy sales declined 3.5 per cent, while comparable retail sales fell 2.6 per cent. “Improved Boots UK market share performance was more than offset by a very weak retail environment,” the company said.

Net income rose to $1.1bn or $1.18 a share, up from $821m or 81 cents a share in the year ago quarter. Adjusting for one-time items, earnings of $1.46 a share, exceeded analyst projections by three cents.

Looking ahead, Walgreens continues to expect adjusted earnings per share growth of between 7 to 12 per cent in fiscal 2019, at constant currency rates.

Walgreens shares, which are up nearly 1 per cent year-to-date, were down roughly 2 per cent in pre-market trade.

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